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Elasticity Econ 200 Homework 5 1. Economists John Rizzo and David Blumenthal found that a 10% decrease in physician wages, resulted in physicians decreasing their hours worked by 2.5%. This means that the price elasticity of supply for physicians is a. 0.25 b. 2.5 c. -0.25 d. -2.5 2. Economists John Rizzo and David Blumenthal found that a 10% decrease in physician wages, resulted in physicians decreasing their hours worked by 2.5%. This means that the price elasticity of supply for physicians is a. elastic b. inelastic c. unit elastic 3. Suppose an economist finds that a 15% decrease in the price of good A results in a 30% decrease in the quantity demanded of good B. This means that the cross price elasticity of demand between good A and B is a. 0.5, and the two goods are substitutes b. 0.5, and the two goods are complements c. 2.0, and the two goods are substitutes d. 2.0, and the two goods are complements e. -0.5, and the two goods are substitutes f. -0.5, and the two goods are complements g. -2.0, and the two goods are substitutes h. -2.0, and the two goods are complements 4. If Fuzzy’s Taco determines that the price elasticity of demand for their margaritas are -1.5, then if they decrease the price of margaritas by 15%, what will happen to the number of margaritas people buy? a. They will increase by 1.5% b. They will decrease by 1.5% c. They will increase by 15% d. They will decrease by 15% e. They will increase by 22.5% f. They will decrease by 22.5% 5. If economists estimate that in the market for apartments the price elasticity of supply is 0.3, then a 10% decrease in the price of apartments results in a a. 0.3% increase in the quantity supplied of apartments b. 3% increase in the quantity supplied of apartments c. 0.3% decrease in the quantity supplied of apartments d. 3% decrease in the quantity supplied of apartments 6. Supposed Toyota has estimated that the income elasticity of demand for Prius’ is 2.4. If consumer income is expected to increase by 3% this year what should Toyota expect to happen to the demand for Prius’? a. Demand will increase by 1.25% b. Demand will decrease by 1.25% c. Demand will increase by 2.4% d. Demand will decrease by 2.4% e. Demand will increase by 7.2% f. Demand will decrease by 7.2% 7. Economists have found that a 7% increase in the price of laptops results in a 14% decrease in the quantity demanded of laptops. The price elasticity of demand for laptops is a. -0.5 b. -2.0 c. -7 d. -14 8. Suppose economists have estimated that the price elasticity of demand for education is -0.8. Based on this information if college tuition increases by 5%. a. College credit hours will fall by 0.8% b. College credit hours will fall by 4.0% c. College credit hours will fall by 5.0% d. College credit hours will fall by 6.25% 9. If the income elasticity of demand for a product is -0.7 then the product is a. A normal good b. An inferior good c. A substitute good d. A complementary good 10. Walt is the Vice-President of Operations and Jesse is the Vice-President of Marketing and Sales of Blue Sky Inc. Walt believes that Blue Sky can increase its revenue by raising price and Jesse believes that Blue Sky can increase its revenue by cutting price. Which of the following is true? a. Increasing price will always increase revenue, so Walt is correct. b. Decreasing price will always increase revenue, so Jesse is correct, c. Increasing price will only increase revenue if demand is elastic, and decreasing price will only increase revenue if demand is inelastic. d. Increasing price will only increase revenue if demand

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